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The Ethereum network’s impressive growth has given rise to a thriving DeFi landscape. Specifically, the network’s transition to proof-of-stake has drawn the attention of institutional investors across the globe.
Ethereum staking allows anyone to participate in securing the network and earn rewards for their contribution by staking ETH. Staking Ethereum is a relatively low risk approach to earning yield on ETH, opening up opportunities for institutional exposure.
With more than $100 billion in ETH staked at present, institutional investors are rushing to take advantage of these opportunities. Let's delve into how institutions are gaining exposure to Ethereum staking.
Institutional staking on Ethereum has gained momentum in recent months. April’s Shanghai upgrade enabled ETH staking withdrawals for the first time, making staking far more attractive for asset managers.
Regulatory uncertainty has been another key factor deterring institutional investors. However, policymakers have made major strides in this regard over 2023.
Specifically, the introduction of Markets in Crypto Assets (MiCA) bill has cleared the path for European investors. This clarity empowers investment firms to trade digital assets with more peace of mind.
Ethereum’s proof-of-stake (PoS) consensus went live in 2022, replacing the existing proof-of-work (PoW) design for validating transactions.
Under proof of work, miners would compete to solve complex algorithms to confirm new transaction blocks. Miners would then receive ETH rewards for their efforts. This approach was highly exclusive and consumed massive amounts of energy.
In contrast, proof of stake is a far more lightweight design. Anyone can stake ETH to validator nodes, which confirm new blocks. As a result, network participation is far more inclusive.
Proof of stake also reduced Ethereum’s energy consumption while providing the foundation for further scaling.
ETH staking rewards are a big attraction for large companies. Depending on the staking solution they choose, participants can earn 3-5% APY for their efforts.
These rewards are derived from three main sources: transaction fees, block rewards, and slashing. A part of the network's transaction fees is given as rewards to stakers. Validators also earn block rewards for creating and checking new transaction blocks.
Slashing is a bit more complex. If validators break rules, they get "slashed" and lose some of their ETH. This lost ETH is then shared among the other stakers.
Running validator nodes can give bigger rewards. This might be too hard for individuals because of the high amount of ETH needed. But it is a good option for institutional investment.
While custodial staking options exist, this choice adds additional risk for firms. Should an exchange fail, firms may risk losing their investments.
Institutional investors can instead use Metamask Institutional to connect with staking service providers.
Headquartered in the United States, Allnodes is a leading non-custodial staking service provider. Allnodes provides an easy gateway for both retail and institutional clients looking to run validator nodes.
The platform provides staking services for many digital assets. It has more than $2B in AUM. The site currently offers 2.7% APR for stakers, plus an 0.8% MEV boost.
Kiln is a versatile staking service provider with a focus on enterprise-grade security. Users can stake their ETH to Kiln’s pool of more than 18,000 validators to earn 3.5% APRs.
The increased demand for ETH staking invariably lowers yield on offer. This is because the same pool of rewards is being split between more and more stakers.
Origin Ether has been built to address the issue of yield compression head-on with breakthrough strategies and mechanics. OETH can be minted using ETH, earning staking yield and additional rewards while maintaining full liquidity.
Users retain full capital control with Origin Ether, which can be traded across DeFi. Its integration with Fireblocks makes OETH accessible to institutions as well as retail investors. OETH deploys these reserves to premier DeFi protocols to generate additional yield for users. Yield is then distributed to OETH holders, saving stakers time and gas costs.
OETH’s strategies target higher yield than traditional staking and LSTs. As a result, stakers often enjoy outsized APYs above 4%.
Discover how OETH can maximize your firm’s staking returns here. Or email [email protected] to set up a call about how your firm can use OETH.
How can institutions participate in Ethereum Staking?
Institutions can join ETH staking by running their own Ethereum validator nodes or by using a service provider. However, regulatory compliance is important to make sure staking follows all laws and rules, keeping investments safe.
How can you earn higher yield from ETH staking?
Using Origin Ether helps you earn higher yields on holding ETH than traditional methods of Ethereum staking.
What is the role of smart contracts in ETH staking?
Smart contracts help automate staking and ensure that everything runs smoothly and securely. They also add an extra layer of risk management.
